Wednesday, 15 May 2019

A plan to build Zimbabwe’s biggest platinum mine at a cost
of about $4 billion is floundering because a military stake in the project has
deterred potential backers, according to people familiar with the funding
discussions.

The African Export-Import Bank has the mandate to raise
money for the mine, a joint venture between Russian and Zimbabwean investors.
While the bank provided $192 million of its own funds, meetings in the past
year with investors including South Africa’s Public Investment Corporation, the
continent’s biggest fund manager, failed to bring additional commitments, one
of the people said, asking not to be identified because the talks are private.

Zimbabwe has the world’s third-largest reserves of
platinum, palladium and related metals such as rhodium — which typically occur
together — after South Africa and Russia. President Emmerson Mnangagwa is
trying to lure investment to the country to help rebuild the economy,
devastated during the 37-year rule of Robert Mugabe.

The sticking point is a Zimbabwe military company that once
was subject to US sanctions. Zimbabwe Defence Industries and Zimbabwe Mining
Development together hold 30% of the joint venture, known as Great Dyke
Investments, through Pen East, a company they control, according to documents
seen by Bloomberg.

Vi Holding, led by Russian entrepreneur Vitaliy Machitski,
has a 50% stake in Great Dyke, and 20% is held by undisclosed Zimbabwean
investors, the documents show. While the documents are dated 2012, the
shareholdings are about the same today, two of the people familiar with the
discussions said. The $4 billion figure is a government estimate of the cost to
develop the mine and associated infrastructure.

“If there is any kind of military shareholding it will make
western investors very uncomfortable, especially the banks,” said Peter Major,
a mining analyst at Mergence Corporate Solutions in Cape Town. “Who is going to
risk it? I think they will battle to get funding from traditional and western
institutions.”

The US Treasury imposed sanctions on Zimbabwe Defence
Industries, or ZDI, and several politicians in 2004 because of violence and
irregularities in the nation’s 2000 and 2002 elections. Vi Holding groups
Russian companies including state-controlled Rostec and development bank VEB,
according to the people. Both companies also have been sanctioned by the US
because of Russia’s 2014 annexation of Crimea.

Global Witness has previously tied ZDI to diamond mining in
eastern Zimbabwe through an indirect shareholding in a Chinese company. Mugabe
said his government lost large sums to theft from that deposit, and Human
Rights Watch in 2009 accused the military of shooting and killing 200 miners
there.

This wouldn’t be the first time military involvement
thwarted a mining project. In 2000, Oryx Diamonds scrapped plans to trade in
London after its adviser withdrew support under pressure from the UK
government. Oryx had planned a diamond mine in Democratic Republic of Congo
with investors that included another Zimbabwe military company at a time when
Mugabe’s forces were fighting in Congo.

Mugabe handed the Great Dyke concession to Russian
investors in 2006 after the government repossessed land from a unit of South
Africa’s Impala Platinum Holdings, or Implats. The first joint venture to try
to tap the deposit was Ruschrome Mining, according to the Zimbabwean
government. Vi Holding took over Ruschrome’s shareholding in 2014, the people
said.

An offer about eight years ago by a “large international
mining house” to buy out Pen East from the project for $30 million was
rejected, according to a proposal prepared by CDF Trust & Consulting BV, a
Zimbabwean consultancy, that was seen by Bloomberg. CDF Trust Managing Director
Caleb Dengu declined to comment.

Agreements signed by Great Dyke, Afreximbank, Vi Holding,
the Russian Export Center and African Finance to develop the mine were
exchanged at a meeting between Russian President Vladimir Putin and Mnangagwa
in Moscow in January.

The project could produce more than 800 000 ounces of
platinum-group metals a year, only one-fifth less than Zimbabwe’s total current
output from mines owned by Implats and Anglo American Platinum Afreximbank is
seeking funding at a time when supplies of the metal are balanced and a
significant increase in production could depress prices.

Afreximbank, which is based in Egypt, will allow potential
backers of the mine at Darwendale, north of the capital, Harare, to use a $1.4
billion guarantee it provided to Zimbabwe, one of the people said. Afreximbank
is partly owned by African governments. African Finance, whose holders also
include African governments, has agreed to invest $75 million, said Hesphina
Rukato, Great Dyke’s chairwoman. Afreximbank will complete financing details for
the project around June, she said.